Deadly derailment won't stop oil shipping via trains

NEW YORK (AP) — A fiery and fatal train derailment earlier this month in Quebec, near the Maine border, highlighted the danger of moving oil by rail, a practice that has grown exponentially as a result of the oil boom and will continue to expand, experts say.

This year, more trains carrying crude will chug across North America than ever before — nearly 1,400 carloads a day. In 2009, there were just 31 carloads a day.

U.S. and Canadian drillers are producing oil faster than new pipelines can be built. As a result, trains have become an unexpected yet vital way to move this bounty of energy from the continent's midsection to refineries along the coasts. Not since the dawn of the petroleum age, when John D. Rockefeller clashed with railroad barons, have trains been so important to the oil market.

Since the July 6 tragedy in Lac-Megantic, where a runaway train carrying 72 carloads of crude derailed and killed 50 people, there have been calls for tougher regulations, stronger rail cars and more pipelines.

But experts say the oil industry's growing reliance on trains won't be derailed anytime soon. Unless new pipelines are built, there's just no other way to get vast amounts of oil from North Dakota and Rocky Mountain states to refineries along the coasts, which are eager for cheaper, homegrown alternatives to imports brought in by boat.

"Stopping crude by rail would be tantamount to stopping oil production in a lot of the places it is now being produced," says Michael Levi, who heads the Council on Foreign Relations' program on energy security and climate change.

Even safety experts worried about the dangers of shipping oil by rail acknowledge that the safety record of railroads is good — and improving. The scope of the Lac-Megantic disaster, which is still under investigation, appears to have been the result of uniquely bad circumstances, these experts say.

"Rail is going to remain a significant part of the way we move crude around the country for a long time," says Jason Bordoff, head of Columbia University's center on global energy policy. "I don't think this rail accident will significantly change that."

The unattended Montreal, Maine & Atlantic Railway train was parked overnight on a rail line before it came loose, hurtling down a seven-mile incline and slamming into the center of Lac-Megantic. Donald Ross, chief investigator for the Transportation Safety Board of Canada, said Friday it remained unclear whether mechanical problems or human error were to blame for the insufficient brake force.

In the first half of this year, U.S. railroads moved 178,000 carloads of crude oil. That's double the number of the same period last year and 33 times more than the same period of 2009. The Railway Association of Canada estimates that as many as 140,000 carloads of crude oil will be shipped on Canada's tracks this year, up from 500 carloads in 2009.

Last year, 663 rail cars carrying hazardous materials derailed or were damaged in the U.S., a decline of 38 percent from 1,072 incidents in 2003, according to the Federal Railroad Administration. That's comparable to the total number of train accidents per million miles traveled, which fell 43 percent over the same period, and the number of derailments, which fell 40 percent.

Whether crude traffic on the rails will continue to grow quickly depends on oil prices around the globe, but refineries are gearing up for more.

Just across the Hudson River from New York City, Phillips 66 is building a terminal for its Bayway refinery that will be able to handle up to 100 rail cars — or roughly 70,000 barrels — of crude per day.

Across the continent, in Ferndale, Wash., BP is building a 2-mile rail loop to do the same. And in Vancouver, Tesoro is building a facility that will be able to unload 170 rail cars a day.

Refineries in Louisiana, Pennsylvania, Delaware, California and Oregon have projects completed or underway that allow them to accept rail shipments of crude, too. That means the oil, mostly from North Dakota, is crossing all of the states in between. (The train that derailed in Lac-Megantic was North Dakota oil destined for an Irving Oil refinery in St. John, New Brunswick.)

A Tesoro refinery in Anacortes, Wash., 80 miles north of Seattle, relies heavily on rail to get crude and a Shell refinery there is getting ready to do the same. Mayor Dean Maxwell said the city's fire department will study the Lac-Megantic accident in an effort to be more prepared. But he considers rail safe and efficient and says the increased train traffic hasn't impacted his community. He's far more worried about other things, like hazardous material traveling on highways.

"We have two refineries within six miles of our downtown," he says. "They're not making ice cream."

While crude transport by rail has grown quickly, it is still a relatively small part of train traffic and the crude trade.

Just 1.4 percent of U.S. rail traffic in the first half of this year was crude oil, according to the Association of American Railroads, an industry group. Pipelines and tankers remain by far the most important way to move crude. Railroads and trucks together supplied just 3 percent of the crude oil that arrived at refineries last year, according to the Energy Department.

And of all the hazardous material trains carry, crude isn't the most volatile or hazardous. Trains transport materials such as chlorine, phosphoric acid and propane — even rocket fuel for the Space Shuttle was moved by train. Railroads also move three quarters of the nation's ethanol — which is quicker to explode than crude — from Midwest farms to fuel terminals around the country for blending into gasoline.

"Oil isn't scary at all," says Mayor Richard Gerbounka of Linden, N.J., home of Phillips 66's Bayway Refinery. Even if the mayor did think it was scary, he wouldn't be able to stop it — local officials do not have the power to restrict rail traffic.

Experts say there are two main dangers when transporting crude and ethanol:

— Volume. When commodities are shipped, they are often assembled into so-called "unit trains" that have up to 100 cars all containing the same substance. These unit trains can make for enormous concentrations of hazardous material — up to 3 million gallons of oil or ethanol in a single train.

In contrast, when dangerous chemicals such as chlorine or anhydrous ammonia are shipped, they usually represent just one or two cars in a train of many other cargos such as auto parts or lumber. "One tank car of phosphoric acid doesn't pose that same kind of risk," says Bob Chipkevich, a former director of railroad, pipeline and hazardous materials investigations at the National Transportation Safety Board.

— Weak tank cars. The safety of the typical train cars that carry crude and ethanol, known as DOT-111 cars, has been called into question by the NTSB since a 1991 study. When trains do derail, these cars have been shown to fail at a high rate.

In 2009 a train carrying 2 million gallons of ethanol through Cherry Valley, Ill., derailed. Of the 15 cars that piled up, 13 failed and sparked a massive fire that killed a woman waiting at a nearby railroad crossing. In a 2006 ethanol train derailment and fire in New Brighton, Pa., 20 of 23 derailed cars released ethanol. The cars that derailed in Lac-Megantic were DOT-111 cars.

"You can expect them to fail," Chipkevich says. "They need to be improved."

Last year the NTSB issued a safety recommendation to the Department of Transportation that suggested that all tank cars that carry crude and ethanol be outfitted with stronger protective equipment. The Lac-Megantic accident increases pressure on regulators to adopt at least some of the recommendations, experts say.

Rail shipments of crude have spiked because oil is being produced in North Dakota in volumes far beyond what drillers had predicted five years ago. Pipelines take years to build and can be difficult to acquire land and permits for, so drillers and refiners needed railroads to quickly move the oil.

There was also big money to be made.

North Dakota crude has been selling for significantly less than similar crude that coastal refineries had been importing from the North Sea and West Africa. Even with the extra cost of shipping by rail, the benefit to refiners' bottom lines is sizable.

Railroads such as Union Pacific and Burlington Northern Santa Fe were also eager to transport more oil by train. It has helped offset a steep decline in coal shipments, which occurred as the drilling boom led more utilities to produce electricity with natural gas.

But the torrid growth of crude shipments by rail isn't likely to continue.

Several new pipelines are planned, and prospects for controversial ones like the Keystone XL may be helped by the devastation in Lac-Megantic. Pipeline spills generally release more oil than train spills, but they are less frequent and not as dangerous to people.

Also, the price difference between North Dakota crude and imported crude, which had been as high as $35 a barrel in November, has recently fallen to just $3 a barrel, thanks in part to rising rail shipments.

Delivery of crude by rail will have staying power, though, experts say.

"Initially rail was a placeholder, but (refiners) like the flexibility and speed to market it offers," says Anthony Hatch, a transportation analyst and consultant.

Shipping crude by rail is roughly $5 to $10 per barrel more expensive than shipping it by pipeline. But pipelines require refiners to enter into long-term contracts for delivery.

Last month Kinder Morgan Energy Partners shelved plans for a pipeline that would move crude from Texas to California because key refiners such as Valero Energy and Tesoro preferred getting crude by rail.

Dean Acosta, a spokesman for Phillips 66, said the temporary fall in the price advantage won't change the company's plans for new rail yards in New Jersey or Washington. "It leaves you a lot of different options," he says.